“‘Too big to fail’ has been solved” – but regulatory reform needed

EU disintegration, anti-globalisation, US financial regulation and addressing 'too big to fail' – these were some of the key financial risks highlighted in a letter by JPMorgan's Jamie Dimon.

The chairman of the world's third biggest bank has expressed his concerns at the increased geopolitical risks arising from the UK's departure from the European Union (EU), as well as the financial policy uncertainty under the current Trump administration in the US, in his annual letter to shareholders. Jamie Dimon, Chairman and CEO of JPMorgan Chase, outlined what he sees as the biggest geopolitical risks as follow:

Brexit and the increasing risk to the EU

Dimon's 46-page letter stated: “We must be prepared to do this assuming a hard exit by the United Kingdom – it would be irresponsible to presume otherwise. While this does not entail moving many people in the next two years, we do suspect that following Brexit, there will be constant pressure by the EU not to “outsource” services to the United Kingdom but to continue to move people and capabilities into EU subsidiaries.”

It also expressed some hope that Brexit could have a positive outcome for the EU and could make it stronger in the long run, although the risk of a negative outcome has also increased.

“We hope that the advent of Brexit would lead the EU to focus on fixing its issues – immigration, bureaucracy, the ongoing loss of sovereign rights and labor inflexibility – and thereby pulling the EU and the monetary union closer together. Our fear, however, is that it could instead result in political unrest that would force the EU to split apart. The unraveling of the EU and the monetary union could have devastating economic and political effects. While we are not predicting this will happen, the probabilities have certainly gone up – and we will keep a close eye on the situation in Europe over the next several years.”

De-globalisation, Mexico and China

The letter touched on the issue of anti-globalisation sentiment, often manifesting as anti-immigration and anti-trade positions. Dimon states that he believes globalisation cannot be reversed. He states: “While there are some issues with our trade policies that need to be fixed, poorly conceived anti-trade policies could be quite disruptive, particularly with two of our key trading partners: Mexico and China.”

Regulatory reform

The letter also covers regulatory reform, criticising the overly complex financial regulations in the US, while also stating that JPMorgan would not support the complete repeal of Dodd-Frank. Dimon said: “The regulatory environment is unnecessarily complex, costly and sometimes confusing. No rational person could think that everything that was done was good, fair, sensible and effective, or coherent and consistent in creating a safer and stronger system. We believe (and many studies show) that poorly conceived and uncoordinated regulations have damaged our economy, inhibiting growth and jobs – and this has hurt the average American. We are not looking to throw out the entirety of Dodd-Frank or other rules...”

Fintech excitement

Last year JPMorgan spent more than US$9.5 billion on technology throughout the organisation, of which approximately US$3 billion was on new initiatives and $600 million was spent on emerging fintech solutions. Dimon said the bank is focusing this year on rolling out: end-to-end digital banking; investment advice and self-directed investing; as well as electronic trading and other online services (e.g., cash management).

CTMfile take: Dimon's letter to shareholders is an annual weathervane for the financial and banking industry. He expresses some quite serious concerns over the repercussions of Brexit; criticises the US regulatory environment saying reform is needed but that might not mean a wholesale repeal of Dodd-Frank; and he also states that banking regulation has now solved the “too big to fail” problem.